Samsung posts weakest profit in more than two years

South Korea’s Samsung Electronics flagged improved second-half results on expectations of a pick up in memory chip and smartphone sales, after posting its weakest profit in more than two years in the first quarter.

The world’s top maker of semiconductors, however, warned of more short-term pain in the second quarter, with memory chip prices likely to decline further before a rebound in demand as data centers re-stock later in the year.

“For the second half of 2019, the company expects memory chip demand for high-density products to increase, but uncertainties in the external environment will persist,” the tech giant said in a statement.

Hit by falls in chip prices and slowing demand for display panels, Samsung posted operating profit of 6.2 trillion won ($5.4 billion) in the quarter ended March, smallest since late 2016 but in line with the company’s guidance.

Revenue fell 13.5 percent to 52.4 trillion won, also in line with its earlier estimates.

Samsung’s core semiconductor business booked a 64 percent fall in operating profit to 4.1 trillion won, while the display business logged 560 billion won in losses.

Memory chip makers have been hit by a downturn in the global smartphone market and a fall in demand from data centers behind cloud computing services amid a broader economic slowdown.

Samsung’s smaller rival, SK Hynix, last week posted the slimmest quarterly operating profit in over two years. But it was confident chip demand would recover later this year, a sentiment echoed by Samsung on Tuesday.

Samsung said its server DRAM chip customers would start rebuilding inventories from the end of the second quarter, while new smartphone models would support sales of mobile DRAM.

For NAND flash memory chips that suffered big price falls since last year, Samsung said market conditions would stabilize in the second half as high-density chip adoption for mobile devices drives up demand.

An easing in China-U.S. trade tensions could also unlock some demand for consumer electronics and encourage Chinese cloud service providers, which had stockpiled chips in anticipation of a prolonged trade war, to lower their inventories to more normal levels, analysts said.

“On the macroeconomic side, China may give a boost to its IT industry to support the economy and if there’s a trade agreement signed between China and United States, these will drive up demand for Samsung’s products, like chips,” senior analyst Song Myung-sup at HI Investment and Securities said.

Mobile worries

The world’s top smartphone maker said its mobile business posted a 40 percent drop in operating profit to 2.3 trillion won in the first quarter.

The Apple Inc rival and supplier is hoping to revive flagging growth in its mobile business with its latest handset, featuring a big, bending screen.

But in a blow to its renewed focus on innovation, Samsung delayed global sales of the foldable phone after reviewers discovered problems with the display.

Samsung, which supplies screens for its own folding phones, forecast weak second-quarter earnings in the display business as demand for flexible screens was expected to remain weak.

But it said demand for flexible display panels would likely pick up and sales for its smartphones were also expected to rise in the second half, led by new models in all segments including the low-end Galaxy A series.

There is “no change” in the company’s push toward foldable phones, said Lee Jong-min, vice president of the company’s mobile business.

“Samsung Electronics have been preparing Galaxy Fold for a long period and there’s no change to our direction to provide premium experiences for customers desiring innovation,” Lee said, reiterating Samsung will find the reason behind the problems with the display.